County Takes Incinerator's Owner To Court Over Tax Bill

The Payments To Covanta Cover Property Taxes, But That Is Not Allowed In Florida, Lake's Attorneys Say.

February 27, 2002|By Kevin P. Connolly, Sentinel Staff Writer

TAVARES -- It's a setup most businesses would envy: The government cuts you a check every year to cover the exact cost of your property-tax bill.

For years, that has been the relationship between Lake County government and the company that operates the power-generating incinerator in Okahumpka.

Now, the county is going to court to end the arrangement, saying the roughly $1 million-per-year payments to Covanta Energy, formally Ogden Corp., essentially amounts to a tax break -- one that is not allowed under state law.

Attorneys for the county will ask a judge today to declare the payments illegal and order the cash-strapped multinational company based in Fairfield, N.J., to refund approximately $10 million worth of previous payments, plus interest, for a total of about $15 million.

Getting out of future payments would save Lake an additional $14 million.

Covanta, which is in the midst of a financial crisis unrelated to Lake's incinerator, will argue that the county knowingly agreed to the setup and the payments are legal.

Today's hearing is part of a larger legal fight by the county launched in October 2000 to get out of a 1988 deal that has been described as the biggest boondoggle in Lake's history.

Lake already has the highest waste-disposal fees in the state -- $95 per ton. The $69.9 million incinerator, which opened in 1991, will have cost taxpayers more than $200 million after the construction bonds are paid off in 2014.

At that point, Covanta -- not Lake County -- will own the incinerator, which burns garbage to produce electricity. Meanwhile, rising costs associated with the incinerator, including the legal fees to fight Covanta and an increase in the bond payments, are draining the Solid Waste Department's budget.

As a result, Lake commissioners agreed two weeks ago to study a uniform garbage fee, which will probably cause trash fees to go up again. Without more cash, the department's reserves will be wiped out after the next budget year.

The issue in today's hearing is a provision in the contract that requires Lake to pay certain "pass-through" costs to Covanta, including an amount equal to the company's annual property taxes. That, according to attorneys for the county, effectively means Lake is illegally paying Covanta's property taxes.

"The problem with that is it's improper and illegal for a governmental body to provide a tax exemption to a private entity such as Covanta in this case," said Jeffrey Keiner,an attorney in the Orlando office of Gray, Harris & Robinson, the firm handling the county's suit.

That's not what's happening, said Philadelphia lawyer David Smith, a partner with the Schnader Harrison Segal & Lewis, which is working for Covanta.

Florida law allows the county to pay Covanta a service fee, which can be measured by the amount of the company's property tax bill, Smith said.

Attorneys for the county are backing up their case with a 1978 Florida Supreme Court decision.

The high court found that Lykes Bros. Inc. had to pay property taxes imposed by Plant City on a meat-packing plant on city-owned property. The city had agreed in 1964 that it would pay the company's taxes or reimburse those costs if the land were annexed into the city.

The land was annexed in 1974, and Lykes Bros. sued to get out of paying $47,112 in city taxes levied the following year, citing its agreement with the city.

The trial court ruled against the company, saying the city's tax-free offer was beyond its power under state law. The justices upheld that decision.

This marks the first year that Lake County has not cut Covanta a check to cover the property taxes. The bill is due by March 31.

"We're not paying it," said Covanta spokesman Vincent Ragucci. "This is a pass-through cost through the service agreement. By not paying the tax, they would breaching the contract, by not fulfilling the obligation. By contract, they are responsible for that tax liability and any interest, taxes or fines that would result from a delay in county payments."

The fight is heating up as Covanta continues to struggle with serious financial problems it blames on millions of dollars worth of overdue payments from California power companies and delays in selling off unwanted parts of the company.

Ragucci said senior managers are meeting regularly with financial experts from Salomon Smith Barney, as well as with outside investors, to figure out how to keep the company going.

The company is trying to restructure to focus on its core mission of energy, which includes electricity-generating trash plants.

Citrus County Circuit Judge Richard Howard will hear arguments on the tax fight today in Inverness in Citrus County. He is expected to issue a ruling in about 30 days.

Meanwhile, a decision is pending on Covanta's appeal of a ruling last fall that favored Lake County. Lake Circuit Court Judge John Booth ordered the company to give county access to public records about the plant's operations -- information that could be crucial in negotiating a new agreement.

The county also is suing to get out of the contract entirely, saying that the deal gives Covanta too much control over the costs of solid-waste disposal. That, attorneys for the county say, amounts to an illegal delegation of government authority to a private entity.